Will Mexico Be Joe Biden’s Next Foreign Policy Blunder?

BY Michael C. Camuñez

Biden meets the Mexican President as Mexico Drifts Into Dangerous Waters.

This week, President Biden has a chance to get something he desperately needs: a “win” on foreign policy.

But it’ll mean changing course with Mexico, one of America’s best allies. And that will require a new strategy and a higher level of engagement with our neighbor than we have seen thus far.

Today’s North American Leaders Summit (NALS) in Washington affords the opportunity to recalibrate what has turned out to be a surprisingly fraught relationship.

The United States has totally misjudged what would be the dire consequences of a sweeping proposal by Mexican President Andrés Manuel López Obrador to radically overhaul Mexico’s energy sector. AMLO wants to reverse what was, in 2013, the historic opening of the Mexican energy industry.

The plan aims to re-establish Mexican sovereignty in the generation and commercialization of electricity. With the objective of bolstering the monopoly position of the state-owned utility, CFE, it will effectively obliterate the emerging renewable energy market in Mexico. Ironically, the deployment of renewables has already slashed the cost of electricity generation in Mexico by two-thirds, taking advantage of the country’s extraordinary natural endowments in solar, wind and hydro. If the counter reform proposal passes, all of that progress will be undone. Existing private generation contracts and permits would be jeopardized; all autonomous energy regulatory bodies would be absorbed into the Energy Ministry, weakening the rule of law; and what is now the independent system operator would become part of CFE.

There’s more bad news. The bill is explicitly retroactive, affecting companies that have been generating electricity under private contracts since the 1990s, putting at risk what Bloomberg estimates could be US $22 billion of private investment. Camouflaged in the rhetoric of national sovereignty, AMLO’s reform appears only to assert a sovereign interest in hydrocarbons in the ground and not the vast renewable resources with which Mexico is blessed.

Yet, in the face of Mexico’s dangerous drift, the U.S. has remained curiously silent. With the exception of U.S. Ambassador Ken Salazar’s recent Tweets expressing “serious concerns” about the reform, the U.S. has been oddly quiet — not just about energy but other AMLO economic policies. Climate Special Envoy Kerry has gone so far as to praise Mexico’s commitment to renewables and climate change. Meanwhile, Mexican Foreign Minister Marcelo Ebrard has taken pains to publicly insist the energy reform is not on the agenda.

Perhaps the Biden Administration has decided not to publicly confront AMLO because it needs his help on border migration or other issues. Or maybe Mexico has simply taken a back seat to other foreign policy priorities like China.

Whatever the reason, the reform poses substantial threats to U.S. economic, environmental, and even national security concerns.

On the economic front, the White House has — due to the COVID-19 pandemic — learned hard lessons about protecting the supply chain. ALMO’s plan would upend North American manufacturing as companies face higher costs of production due to increased energy costs. Many global companies — including U.S. firms — are already pressured to reduce the carbon footprint of their entire value chain. It would become impractical to manufacture in Mexico, where expensive electricity would be derived primarily from heavily polluting, aging CFE plants. And this at a time when Mexico and North America should be a prime target for sensitive advanced manufacturing in key technologies, from smart grid components to other electronics.

The environmental costs would also be devastating. Mexico’s regression to a carbon-intensive energy market, becoming one of the most polluting nations in Latin America, would stand in sharp contrast to Biden’s efforts to lead on climate change. Mexico is now a laggard, in terms of its Nationally Determined Contribution under the Paris Accord and COP26. The reform ensures that Mexico will not reach the goal of generating 35% of its electricity from clean sources in 2024. Why the United States would allow its largest trading partner to fall so far behind at this moment is hard to comprehend.

Finally, there are substantial national security concerns for the United States. It takes a long time for manufacturing to recover from significant disruptions.

Decisions made today about investing in — or divesting from — Mexico will reverberate for years.

The disruption of manufacturing and other key sectors in Mexico will adversely affect the Mexican economy’s ability to absorb and employ the country’s relatively young working population. This would likely increase migration from Mexico, adding to already overwhelming tensions on the border. A weakened Mexico intensifies the challenge the U.S. faces in addressing insecurity, cartel violence, drug trafficking and migration from Latin America. In this regard, the Biden Administration’s failure to confront the challenge risks allowing a major foreign and domestic policy crisis to fester on its watch.

For all these reasons, the Biden Administration must immediately ramp up its advocacy and diplomatic engagement with the AMLO administration. While respecting Mexico’s right to manage its own energy resources, the U.S. must express its concerns about the path chosen in the reform. This is not meddling in domestic affairs. Far from it. Mexico’s policies will have far-reaching and disastrous consequences for the planet, making them very much our business.

As a long-standing advocate of a strong, constructive U.S.-Mexico relationship, I believe fervently in the promise of a competitive North American enterprise of which Mexico is a critical and co-equal partner. As I read the myriad opinion pieces out this week on the summit, replete with aspirational and hortatory rhetoric about renewing the North American project, I worry we are all missing the boat. Mexico is clearly adrift in choppy waters, and the U.S. has cause to worry.

I hope the Biden Administration will recognize the urgency of this situation and correct course, starting with today’s summit.

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Michael C. Camuñez is the former Assistant Secretary of Commerce in the Obama Administration who was the principal architect of the U.S.-Mexico High Level Economic Dialogue.

The views and opinions expressed here are those of the author and do not necessarily reflect the official policy or position of the Pacific Council.